It’s the constant refrain of small businesses everywhere: Need. More. Cash.
But if you already have one small business loan, is it worth it to try and get another, i.e. “stack loans”? Or should you take your business lending slow and steady?
We’ve listed a few questions you should ask yourself before deciding whether or not you should stack loans.
Is your business growing rapidly? Do you find yourself working long days and fulfilling orders with barely any breathing room? Is your checking account as healthy as it’s ever been? Then you may be a prime candidate for a loan.
On the other hand, if you are struggling financially and already have one loan, think long and hard about stacking loans.
On a related note, how will you use the money if you take out a new loan? Perhaps you have eager customers beating down the doors and you need money to fulfill orders. Or maybe if you just had a few more employees you’d be able to scale your business to fit a whole new niche or serve an entirely new market.
On the downside, would you use the loan to pay creditors or solve an operational loss? If it feels like you need an influx of cash for life support then you may want to rethink taking out a second loan at this time.
Ask yourself whether your initial loan would work alongside a second loan. If the interest rates are low, the payments are comfortable and you haven’t already used all of your assets as collateral, then your loan terms are favorable.
That said, if you’ve already leveraged your assets or are paying a high amount of interest, then conditions may not be so favorable for a bank or other lender to consider giving you an additional loan. As well, it is possible taking on additional debt could violate the terms of your existing debt. Be sure to read your current credit agreement before moving forward.
Now that you’ve taken a hard look at your business, your finances and the state of your current loan, it’s time to evaluate whether or not you should stack loans.
If your business is demonstrably growing and you see a way that adding capital now could result in short term gains, then it might be time to stack loans. This is, of course, assuming that the conditions of your current loan are favorable, that you have collateral or assets to leverage, and that you can meet the burden of paying an additional loan back.
If, on the other hand, you need cash to fix a serious problem or dig out of a hole, then stacking loans may not be your best bet. But if this sounds like your dilemma, never fear. There are other funding options out there aside from a loan. Don’t discount anything from factoring accounts receivable to taking on investors to really outside-the-box methods of fundraising such as moving your operations into a garage or renting out part of your home. Just because the commitment of a loan isn’t in the cards for your business right now, doesn’t mean that you can’t bolster your business in other ways.